System and method for performing automatic spread trading

ABSTRACT

The present embodiments are provided to facilitate the automatic trading of spreads in a fast and accurate manner. One or more market data feeds that contain market information for tradeable objects are received at an exchange. A spread data feed is generated in response to the market data feeds and from one or more spread setting parameters, which can be entered by a user. The spread data feed is preferably displayed in a spread window as bid and ask quantities associated with an axis or scale of prices. The user can enter orders in the spread window and the legs will be automatically worked to achieve, or attempt to achieve, the spread. In addition, other tools disclosed herein may be utilized to assist the user in making such trades.

CROSS-REFERENCE TO RELATED APPLICATION

This application claims the benefit of U.S. Provisional Application No.60/361,958, filed Mar. 5, 2002, entitled System and Method forPerforming Automatic Spread Trading, the contents of which areincorporated by reference herein.

FIELD OF THE INVENTION

The present invention is generally directed to electronic trading, andin particular, facilitates trading of any tradeable object in anelectronic trading environment.

BACKGROUND

Many exchanges throughout the world implement electronic trading invarying degrees to trade tradeable objects, where a tradeable objectrefers simply to anything that can be traded. Tradeable objects mayinclude, but are not limited to, all types of traded financial products,such as, for example, stocks, options, bonds, futures, currency, andwarrants, as well as funds, derivatives and collections of theforegoing, and all types of commodities, such as grains, energy andmetals. Electronic trading has made it easier for a larger number ofpeople with many different trading strategies to participate in themarket at any given time. The increase in the number of potentialtraders has led to, among other things, a more competitive market,greater liquidity, and rapidly changing prices. Speed is of greatimportance otherwise the risk of loss can be substantial.

Exchanges that implement electronic trading are generally based oncentralized computers (host), one or more networks, and the exchangeparticipants' computers (client). The host forms the electronic heart ofthe fully computerized electronic trading system. The host's operationstypically cover order-matching, maintaining order books and positions,price information, and managing and updating the database for the onlinetrading day as well as nightly batch runs. The host is also equippedwith external interfaces that maintain online contact to quote vendorsand other price information systems.

Typically, traders can link to the host through one or more networks,where a network can include a direct data line between the host and theclient, or where a network can also include other common networkcomponents such as high-speed servers, routers, and gateways, and so on.For example, a high speed data line can be used to establish directconnections between the client and the host. In another example, theInternet can be used to establish a connection between the client andthe host. There are many different types of networks known in the artthat can link traders to the host.

Regardless of the way in which a connection is established, the clientdevices allow traders to participate in the market. Each client usessoftware that creates specialized interactive trading screens. Thetrading screens enable the traders to enter and execute orders, obtainmarket quotes, and monitor positions while implementing various tradingstrategies including those previously used on the floor of an exchange.Such strategies incorporated into an electronic marketplace can improvethe speed, accuracy, and ultimately the profitability of tradingelectronically. One such trading strategy is spread trading.

Spread trading is the buying and/or selling of two or more tradeableobjects, the purpose of which is to capitalize on changes or movementsin the relationships between the tradeable objects. A spread trade couldinvolve buying two or more tradeable objects, buying and selling two ormore tradeable objects, selling two or more tradeable objects or somecombination thereof. Typically, spread trading is the simultaneoustrading of at least one tradeable object and the trading of at least oneother. Often, the tradeable objects being spread are contracts fordifferent delivery months (expiration dates) of the same tradeableobject or contracts of the same tradeable object at different strikeprices, but sometimes involve different tradeable objects or the sametradeable object on different exchanges. Spread trading is usually lessrisky than other types of trading strategies such as position trades,because a position is protected where an investment is made by taking anoffsetting position in a related product in order to reduce the risk ofadverse price movements. For example, a trader might simultaneously buyand sell two options of the same class at different strike prices and/orexpiration dates. Of course, there are many other reasons for spreadtrading, and there are many known varieties of spread tradingtechniques.

With the advent of electronic trading, trading strategies such as spreadtrading can be incorporated into the electronic marketplace. However,the success of a trader who trades in a competitive electronic tradingenvironment may depend on many factors. Among those factors includespeed, such as the speed in calculating what tradeable objects to quote,the speed in calculating what price to quote at, and the speed incalculating how much to quote. Because speed is of great importance, itis desirable for electronic trading systems to offer tools that canassist a trader in trading in an electronic marketplace, and help thetrader to make trades at the most favorable prices in a speedy andaccurate manner.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 shows a generalized flowchart showing a method for facilitatingthe automatic trading of spreads;

FIG. 2 shows a preferred system that is suitable for facilitating theautomatic trading of spreads;

FIG. 3 shows a preferred spread manager window that may be used tocreate new spreads, edit and/or delete existing ones, and that candisplay a list of the created spreads;

FIG. 4 shows a preferred spread configuration window that may beaccessed via the spread manager window in FIG. 3;

FIG. 5 shows a market grid window that displays tradeable objects(contracts) and market information corresponding to the tradeableobjects;

FIG. 6 shows a spread configuration window that already has two legsadded to it, although any number of legs may be added;

FIG. 7 shows a preferred type of spread window and two legs that, inthis example, are generated upon pressing the “OK” icon in the spreadconfiguration window in FIG. 6;

FIG. 8 shows a flowchart that illustrates a method of determining thespread depth and prices, which may then be displayed in the spreadwindow in FIG. 7;

FIG. 9 shows a flowchart that further illustrates the method ofdetermining the spread depth and price in FIG. 8;

FIG. 10 is substantially similar to FIG. 7, except that it shows anentered order in the spread window and shows the corresponding workingorders in the legs;

FIG. 11 shows a flowchart that illustrates a method of quoting in thelegs;

FIG. 12 shows a flowchart that further illustrates how the automaticspreader may calculate where to quote in the legs;

FIG. 13 shows a spread window having a working offer spread order and aworking bid spread order;

FIG. 14 shows an example of a boundary applied to the working offerspread order for the example of FIG. 13;

FIG. 15 shows an example of a boundary applied to the working bid spreadorder for the example of FIG. 13; and

FIG. 16 illustrates the submission of an offset order using payup ticks.

DETAILED DESCRIPTION

I. General Overview of the Automatic Spreader

The present embodiments, referred to herein as the “automatic spreader,”are provided to facilitate the automatic trading of spreads. Generally,a “spread” is the purchase or sale of one or more tradeable objects andan associated purchase or sale of one or more tradeable objects, in theexpectation that the price relationships will change so that subsequentoffsetting trades yield a net profit. As used herein, the term“tradeable object” refers simply to anything that can be traded with aquantity and/or price. It includes, but is not limited to, all types oftradeable objects such as financial products, which can include, forexample, stocks, options, bonds, futures, currency, and warrants, aswell as funds, derivatives and collections of the foregoing, and alltypes of commodities, such as grains, energy, and metals. The tradeableobject may be “real”, such as products that are listed by an exchangefor trading, or “synthetic”, such as a combination of real products thatis created by the user.

According to the present embodiments, a user selects the individualtradeable objects underlying the spread, referred to herein as the“legs” of the spread. The automatic spreader generates a spread datafeed based on information in the legs and based on spread settingparameters, which are configurable by a user. The spread data feed iscommunicated to a graphical user interface manager (“GUI manager”) whereit is displayed in a spread window and the legs may also be displayed,but preferably the legs are displayed in separate windows from thespread window. At the electronic terminal, the user can enter orders inthe spread window and the automatic spreader will automatically work thelegs to achieve (or attempt to achieve) the spread. It should beunderstood that those skilled in the art of trading are familiar with awide variety of spread trading techniques and the present embodimentsare not limited to any particular type of spread trading technique.

FIG. 1 is a flowchart 100 that, in general, shows the method forfacilitating the automatic trading of spreads according to the presentembodiments. Each step of the flowchart 100 is described with respect tothe sections below. It should be understood, however, that the flowchart100 provides only an illustrative description of the operation of theautomatic spreader, and that more or fewer steps may be included in theflowchart 100, and/or the steps may occur in one or more orders whichare different from the order of steps shown in FIG. 1. For example, thestep 104 “configure the spread data feed,” may occur before or at thesame time as the step 102 “receive one or more market data feeds.”

II. Receiving Data Feeds from One or More Exchanges

At step 102, market data feeds are received from one or more exchanges.A market data feed generally includes the price, order, and fillinformation for an individual tradeable object. In a preferredembodiment, the market data feed provides the highest bid price (HBP)and the lowest ask price (LAP) for a tradeable object, referred to asthe “inside market,” in addition to the current bid and ask prices andquantities in the market, referred to as “market depth.” Some exchangesprovide an infinite market depth, while others provide no market depthor only a few prices away from the inside market. The number of marketdata feeds received at step 102 may depend on the number of tradeableobjects selected for spread trading by a user, or alternatively, some orall of the data feeds from an exchange are received and only thosetradeable objects which are part of the spread are traded.

FIG. 2 shows a preferred system 200 that is suitable for facilitatingthe automatic trading of spreads. The system 200 includes anapplications program interface (“API”) 206 that translates market data208 for one or more tradeable objects to an appropriate data format,referred to as market data feed(s) 202, which are communicated betweenthe different exchanges and trading applications hosted on theelectronic terminals. Electronic terminals may be computing devices suchas personal computers, laptop computers, hand-held devices, and soforth. The system 200 preferably supports up to “T” exchanges and up to“M” electronic terminals.

An electronic terminal 212 is shown in more detail to illustrate theinteraction between its software and/or hardware components. Theelectronic terminal 212 includes many components, some of which are notshown for purposes of clarity, but those that are shown include atrading application 210, an automatic spreader 214, and a GUI manager216. In a preferred embodiment, the trading application 210 and theautomatic spreader 214 are software applications hosted on theelectronic terminal 212. Although the automatic spreader 214 is showntogether with the trading application 210, it should be understood thatthe automatic spreader 214 and the trading application may be the samesoftware application or separate software applications on the same ordifferent terminals. Alternatively, the automatic spreader 214 and/orthe trading application 210 are hosted on a server and accessed by theelectronic terminal 212 over a network. The GUI manager 216 is asoftware application (as shown in FIG. 2), but preferably may work withhardware components such as an input device like a mouse, keyboard, ortouch screen, and an output device like a monitor, for example.

In the preferred embodiment, the trading application 210 is an X_TRADER®trading application which is commercially available from TradingTechnologies, Inc. of Chicago, Ill. The X_TRADER® trading applicationincorporates display screens of the type illustrated in FIG. 7 and suchdisplay screens are sometimes referred to herein as MD_TRADER™-styledisplays. MD_TRADER™-style displays show information, such as marketdepth or working orders, in association with an axis or scale of prices.FIG. 7 shows an embodiment in which the system displays the market depthon a vertical plane, which fluctuates logically up or down the plane asthe market prices fluctuate. The invention is not limited, however, toany particular type of display—the information could be displayed on ahorizontal plane, n-dimensionally or in any other fashion. TheMD_TRADER™-style display is described in U.S. patent application Ser.No. 09/590,692, entitled “Click Based Trading With Intuitive GridDisplay of Market Depth,” filed on Jun. 9, 2000, and U.S. patentapplication Ser. No. 09/971,087, entitled “Click Based Trading WithIntuitive Grid Display Of Market Depth And Price Consolidation,” filedon Oct. 5, 2001, the contents of both are incorporated by referenceherein. Moreover, the trading application 210 may implement tools fortrading tradeable objects that are described in a U.S. patentapplication Ser. No. 10/125,894 filed on Apr. 19, 2002, entitled“Trading Tools for Electronic Trading,” the contents of which areincorporated by reference.

Turning back to FIG. 2, in general, “Z” market data feeds (for a totalof Z tradeable objects or contracts) are communicated from the API 206to the trading application 210 where they are stored and continuouslyupdated (or periodically updated). Using some or all of the Z marketdata feeds and the spread setting parameters, the automatic spreader 214generates a third data feed, referred to herein as a spread data feed.The spread data feed preferably includes spread price, and spread marketdepth, but may alternatively include other items of interest to the usersuch as the last traded price (LTP) and the last traded quantity (LTQ).The configuration and generation of the spread data feed using themarket data feeds and the spread setting parameters are described in thesections below. The spread data feed is communicated to the GUI manager216 where it can be displayed in a spread window and traded.

III. Configuring the Spread

Referring back to the flowchart 100 in FIG. 1, at step 104, the spreaddata feed may be uniquely configured by a user to customize, among otherthings described below, calculation of spread prices and spread marketdepth. Preferably, the calculation of spread prices and spread marketdepth are based on the bids and offers from the actual markets for thetradeable objects of the legs and the spread setting parameters, whichare set by the user. In the preferred embodiment, the user mayre-configure existing spreads, or the user can create new spreads toconfigure by first selecting the underlying tradeable objects (legs) forthe spread. Once the tradeable objects are selected, the spread may beconfigured by the user upon the entering of spread setting parameters ina configuration window, described below.

FIG. 3 shows a preferred spread manager window 300 that may be used tocreate new spreads, edit and/or delete existing ones, and that candisplay a list of the created spreads. In the preferred embodiment, thespread manager window 300 is opened upon execution of the automaticspreader. The spread manager window 300 has a number of icons that canbe used to launch spreads which have already been created, as well as,create new spreads or edit and/or delete existing ones. Preferably, theicons are “grayed out” (icons 304, 306, 308, and 310 are shown “grayedout”) to indicate to the user that the option is not available at thepresent time. When the option is available to the user, the icon willreturn to black text (such as icon 302) indicating that the option maybe used. The icons include: “New” 302 that when pressed opens a newconfiguration spread window used to create a new spread (e.g., see theconfiguration spread window 400 in FIG. 4); “Edit” 304 that when pressedopens the configuration window already filled in with the spreadinformation for the spread selected from the list (e.g., see theconfiguration spread window 600 in FIG. 6); “Delete” 306 that whenpressed deletes the spread selected from the list for the workspace;“Clone” 308 that when pressed duplicates the selected spread and adds itto the list with the word ‘copy’ added to the end of the spread title todistinguish between spreads; “Launch” 310 that when pressed, an instanceof the spread window with the spread parameters selected during itsinitial creation is displayed. More or fewer icons may be provideddepending on the application.

FIG. 4 shows a preferred spread configuration window 400 that may beopened upon pressing “New” 302 in the spread manager window 300 in FIG.3. The spread configuration window 400 may be used to create a newspread by adding one or more legs to it. There are many ways in whichlegs may be added to the spread window 400 and include selecting two ormore tradeable objects from a market grid window (e.g., see the marketgrid window 500 in FIG. 5) and dragging them into the spreadconfiguration window 400, or selecting two or more tradeable objectsfrom the market grid window, and through a pop-up menu, selecting tospread trade only the highlighted tradeable objects. Alternatively, oneleg at a time may be individually selected and dragged into the spreadconfiguration window 400. Other methods and icons may be used for addingthe legs to the spread configuration window 400 such as having an iconthat allows a user to browse a list of tradeable objects and select thedesired tradeable objects from the list, or having a field that allows auser to enter the desired tradeable objects in by name, and so forth.FIG. 5 shows an example of a market grid window 500 that displaystradeable objects (contracts) and market information corresponding tothe tradeable objects. In one embodiment, a user may select two or moretradeable objects by highlighting the tradeable objects with an inputdevice such as a mouse, keyboard, or touch screen. Upon highlighting thetradeable objects, the user may drag them into a spread configurationwindow (e.g., the spread configuration window 400 in FIG. 4) to create anew spread, or the user may instead click on the highlighted tradeableobjects in the market grid window 500 to get a pop-up menu and thenselect an option in the pop-up menu to spread only the highlightedtradeable objects. Note that there are many other known ways, notdescribed here, in which legs can be added to the spread configurationwindow.

FIG. 6 shows a spread configuration window 600 that already has two legsadded to it, although any number of legs may be added to the spreadconfiguration window 600. Preferably, the spread configuration window600 has many spread setting parameters that can be set by a user tocustomize the spread data feed. As such, the spread setting parametersmay control the behavior of the spread as it is generated and/ordisplayed and/or traded, depending on the particular parameter. Althougheach spread setting parameter shown in FIG. 6 will be explained ingreater depth below with respect to its function, a preferable list ofthem are provided here. The “Spread Name” 602 provides the name of thespread and/or the names of the underlying tradeable objects (e.g.,“TTSIM-D FGBL SEP02 vs. TTSIM-D FGBM SEP02”). Moreover, the names of thelegs are displayed in the “Leg” fields 604 and 606. Alternatively, auser can personalize the spread by renaming the spread and/or the legsto have any desired name. Other parameters include “Inside Slop” 608,“Outside Slop” 610, “Leg Color ID” 612, “Implied Spread Price” 614, “NetChange” 616, “Customer Account” 618, “Active Quoting” 620, “Adjust forMarket Depth” 622, “Offset with” 624, “Payup Ticks” 626, “Spread ratio”628, “Spread Multiplier” 630, “Use Cancel/Replace rather than Change”632, and “Price Reasonability check on leg” 634. A user may select “OK”636 when the spread has been configured to open a spread window and legwindows. It will be appreciated by those skilled in the art that theparameters above may be flexible and/or changed as circumstances dictatebecause of the wide range of products that can be traded using theautomatic spreader. Moreover, the columns in the spread configurationwindow 600 can be dragged and dropped such that the user can re-arrangethe order of the legs.

IV. Generation of the Spread

Referring back to the flowchart 100 in FIG. 1, at step 106, theautomatic spreader generates a spread data feed based on selected marketdata feeds and the spread setting parameters. In a preferred embodiment,the spread data feed includes spread prices and spread depth.Additionally, the spread data feed may also include the last tradedprice (LTP) and the last traded quantity (LTQ), in addition to otheruseful items of interest such as open, close, settlement, dailyhigh/low, and so on. Of course, the spread data feed can include more orfewer items of interest, depending on the limits of the exchange fromwhich the market data feed came, and so forth. It is also possible toallow the trader to customize the type of information included in thespread data feed.

The spread data feed may be continuously (or periodically) updated andstored at the electronic terminal according to the received market datafeeds. Therefore, the process of generating a spread data feed maycontinue on a real time basis as such information is relayed from themarket. However, the generating of the spread data feed may continue ona periodic time basis, for example, every half-second, if programmed.Preferably, only those values that are displayed in the spread windowthat change from one moment in time to another are updated on thedisplay.

During spread generation and/or after spread generation, the spread datafeed is displayed in a spread window. FIG. 7 illustrates one such typeof spread window 700 of the preferred embodiment and its two legsdisplayed in the “first leg” window 702 and the “second leg” window 704,which are generated upon pressing the “OK” icon 636 in FIG. 6. In FIG.7, the first leg window 702 corresponds to the “FGBL SEP02” contract,whereas the second leg window 704 corresponds to the “FGBM SEP02”contract. FIG. 7 illustrates a two-legged spread for sake of simplicityand thus illustrates a spread window and two leg windows, however, itshould be known that the number of windows displayed depends on thenumber of legs in the spread and the user's preferences.

Preferably, the windows 700, 702, 704 show the inside market and themarket depth of the generated spread data feed (displayed in window 700)and for the legs (displayed in leg windows 702 and 704). Columns 706,708, and 710 provide the buy quantities and columns 712, 714, and 716provide the ask quantities at corresponding price levels shown incolumns 718, 720, and 722, respectively. Columns 724, 726, and 728display the user's working orders, described in greater detail withrespect to entering orders in the spread window below. As expressedearlier, the MD_TRADER™-style screen displays of the type illustrated inFIG. 7 are described in the above incorporated patent applicationsentitled “Click Based Trading With Intuitive Grid Display Of MarketDepth,” “Click Based Trading With Intuitive Grid Display of Market Depthand Price Consolidation,” and “Trading Tools for Electronic Trading.” Itshould be understood, however, that the present invention is not limitedto this particular type of screen display.

Preferably, the MD_TRADER™-style screen display shown in FIG. 7 isconfigurable by a user to display one or more icons or fields ofinterest to the user. This may be advantageous because it allows theuser to tailor the display to his or her liking. Some of the icons orfields of interest that can be displayed or hidden by the user include asystem clock that shows the current time. A pull-down menu allows atrader to specify which account the trader is trading. Moreover, theStop Market (SM)/Stop Limit (SL) buttons are optional depending on userpreferences and they enable stop limit and stop market orders. The “DelAll Button” deletes all bids and offers from the market. Del Bids Buttondeletes all bids from the market (a “5” is shown to indicate the numberof bids which are currently in the market). Del Offers Button deletesall offers from the market (a “0” is shown to indicate the number ofoffers which are currently in the market). Of course, more or feweritems of interest may be included in the MD_TRADER™-style screen displayof FIG. 7, some of which are described in the incorporated patentapplications entitled “Click Based Trading With Intuitive Grid DisplayOf Market Depth,” “Click Based Trading With Intuitive Grid Display ofMarket Depth and Price Consolidation,” and “Trading Tools for ElectronicTrading.”

A. Implied Prices or Net Change

Through a spread configuration window (e.g., see the spreadconfiguration window 600 in FIG. 6), a user can selectively choosewhether the generated spread prices are based on implied price levels ornet change. Implied price is the price of the spread displayed as a cashvalue based on the current price for each leg of the spread. Net changeis the price of the spread displayed as a net change value based on aprice differential over a period which the user selects, such as theprevious settlement price for each leg of the spread. Those skilled inthe art of trading are familiar with a wide variety of spread pricingtechniques and the preferred embodiments are not limited to anyparticular type of pricing scheme.

In a preferred embodiment, when the spread data feed is based on theimplied spread price, the automatic spreader may calculate for anyunknown variable such as the implied spread price k or one of the legprices p, using the following equation. Examples are provided herein toillustrate how the automatic spreader might use this equation tocalculate spread prices and quote legs.k=m _(leg1) p _(leg1) +m _(leg2) p _(leg2) + . . . +m _(legn) p_(legn)  [EQN 1]

-   -   k=spread price (implied price);    -   n=total number of legs;    -   m_(legn)=spread multiplier for leg n; and    -   p_(legn)=price for leg n.

In another preferred embodiment, when the spread data feed is based onthe net change, the automatic spreader 214 may calculate for any unknownvariable such as the net change, k or leg prices p, using the followingequation, which may be used instead of EQN 1.k=NCT _(leg1) m _(leg1) +NCT _(leg2) m _(leg2) + . . . +NCT _(legn) m_(legn)  [EQN2]

-   -   k=spread price (net change);    -   n=total number of legs;    -   m_(legn)=spread multiplier for leg n; and    -   NCT_(legn)=Net Change of the spread over a period for leg n.

In accordance with the preferred embodiment, the spread multipliers,m_(legn), are chosen by the user and attempt to homogenize the tradeableobjects in terms of tick and currency differentials. For example, if oneproduct is in Euros and another product is in U.S. dollars, the spreadmultipliers may be used to convert the two products into a uniformcurrency (e.g. both in U.S. dollars). The spread multipliers for eachleg may also be entered by the user into a spread configuration window(e.g., 600 in FIG. 6). Note also that the automatic spreader mayaccommodate any spread multiplier values.

B. Determining Spread Bid Depth

FIG. 8 shows a flowchart 800 that illustrates a method of determiningthe spread depth and prices, which are then displayed in the buyquantities column 706, sell quantities column 712 and price column 718of the spread window 700 in FIG. 7. The flowchart 800 illustrates a wayto determine the spread depth and prices, however, it should beunderstood that the flowchart 800 may include more or fewer steps, inthe same or different order, to achieve the same result. Thus, thepresent embodiments should not be limited to the steps shown inflowchart 800.

The following discussion walks through the flowchart 800 with respect tothe example spread illustrated and set-up in FIGS. 6 and 7. Thisparticular spread, as configured in FIG. 6, is set up so that for eachspread buy there will be a buy in the first leg and a sell in the secondleg. This is defined by the spread ratios set at 1 for leg 1 and −1 forleg 2 as shown at 628 in FIG. 6. The spread ratio indicates the quantityof each leg in relation to the others. A positive spread ratiopreferably indicates a long leg (i.e., a buy), whereas a negative spreadratio (−) preferably indicates a short leg (i.e., a sell). Any value forthe spread ratio(s) may be entered for each leg at 628 in FIG. 6. Aspread can be configurable in any number of ways other than theparticular spread in FIG. 6.

At step 802, preferably all quantities, which include both buy and sellquantities at each price level in each leg are stored. The quantitiesare preferably stored in a temporary fashion, such as buffering, in adata file, but alternatively the quantities may be stored for longperiods of time for future processing. To illustrate step 802, thequantities in columns 708, 714, 710, and 716 in FIG. 7 are stored attheir corresponding price levels. For instance, in column 708 (i.e., thebuy column for the first leg) a file may contain data as follows: 10 at105.12, 1 at 105.11, 5 at 105.10, 7 at 105.09, and 5 at 105.08. Notethat in this example only the data in columns 708 and 716 are used indetermining spread bid depth and prices, whereas only the data incolumns 714 and 710 are used in determining spread ask depth and pricesas described below.

At step 804, the automatic spreader can calculate spread quantities atcorresponding spread prices based on the stored quantities from step802. To better illustrate the step of 804, FIG. 9 shows a flowchart 900that illustrates a method of determining the spread quantities andspread prices.

At step 902, spread units in each leg are calculated, where a spreadunit is the absolute value of the quantity available at a price level ina leg divided by the spread ratio for that leg. Recall that the spreadratio is input by the user in the spread configuration window.

$\begin{matrix}{{{spread}\mspace{14mu}{unit}} = {{abs}( \frac{Q_{legn}}{{ratio}_{legn}} )}} & \lbrack {{EQN}\mspace{14mu} 3} \rbrack\end{matrix}$Spread units as defined in EQN 3 may be interchangeable with quantitiesas used herein, depending on the ratio input by the user. Returning backto the example in FIG. 7, the spread ratio of 1 was input for the firstleg (i.e., the buy leg) and the spread ration of −1 was input for thesecond leg (i.e., the sell leg). Therefore, the spread units for column708 are 10/1=10, 1/1=1, 5/1=5, 7/1=7, and 5/1=5. This is repeated forcolumn 716, except that the spread ratio for the second leg would beused. In another example, assume that a spread ratio of −2 was input forthe first leg, then the spread units for column 708 would be 10/2=5,1/2=0.5, 5/2=2.5, 7/5=3.5, and 5/2=2.5. Again, this would be repeatedfor column 716. The method of determining spread units is also repeatedfor columns 714 and 710 when determining spread ask depth and pricesdescribed in the following section.

At step 904, preferably starting at the spread units with the highestbid price (HBP) in the buy leg(s) and the spread units with the lowestask price (LAP) in the sell leg(s), the minimum spread unit isdetermined. To illustrate step 904, using the example laid out in FIGS.6 and 7, with a spread ratio of 1 (i.e., a buy leg) for the first leg,and a −1 (i.e., a sell leg) for the second leg, the spread unit at theHBP is 10 at 105.12, and the spread unit at the LAP is 2 at 104.24. Theminimum spread unit is 2, that is, 2 is less than 10.

At step 906, if the minimum spread unit is one or greater, the spreadquantity is equal to the minimum spread unit (a decimal number greaterthan 1 may be rounded up/down or truncated), then per step 908, thespread price is calculated using either EQN 1 or EQN 2. Referring backto the example illustrated in FIG. 7, the minimum spread unit is 2,which is greater than 1, so the spread quantity is 2 for this example,and the spread price is calculated to be 0.880 using the followingrelationship.k=m _(leg1) p _(leg1) +m _(leg2) p _(leg2) + . . . +m _(legn) p _(legn)

-   -   k=spread price;    -   n=2;    -   m_(leg1)=1;    -   m_(leg2)=−1;    -   p_(leg1)=105.12; and    -   p_(leg2)=104.24.        If the minimum spread unit is less than one, then a weighted        average of prices is determined, per steps 910, 912, and 914,        for each leg that has a minimum spread unit less than one,        determined in step 904.

At step 910, assuming that there is a leg with a minimum spread unitless than one, the automatic spreader would look to the next level ofdepth for enough spread units to make 1 spread unit. For instance, usingthe numbers illustrated in FIG. 7, assume that the spread ratio for thesecond leg was −4, then column 716 would be: 0.5, 0.25, 1, 0.25, and0.75. Therefore, spread units would be added together until one spreadunit is found, thus, 0.5+0.25+0.25=1.

At step 912, the weighted average of prices for those spread units usedin step 910 is calculated. This weighted average of prices is a pricefor the leg with the minimum spread unit less that one that is used ineither EQN 1 or EQN 2. Using the example in step 910 with a spread ratioof −4, the weighted average may be calculated by the followingrelationship.(0.5*104.24)+(0.25*104.25)+(0.25*104.26)=104.25 (i.e., 104.2475 roundedup)

At step 914, using the example set out in steps 910 and 912, the spreadquantity is 1, and the spread price would be calculated as 0.870 usingthe following relationship.k=m _(leg1) p _(leg1) +m _(leg2) p _(leg2) + . . . +m _(legn) p _(legn)

-   -   k=spread price;    -   n=2;    -   m_(leg1)=1;    -   m_(leg2)=−1;    -   p_(leg1)105.12; and    -   p_(leg2)=104.25 (the weighted average price for this example).

Returning back to FIG. 8, at step 806, the spread quantity and thespread price are stored in memory, either temporarily or for a longerperiod of time, depending on the programming.

At step 808, the quantities or spread units that were used in step 804are preferably removed from the stored quantities in step 802.

At step 810, if there are quantities left over in any leg, then move tostep 814, otherwise, per step 812, all of the spread quantities andspread prices stored in step 806 can be displayed in the spread window.The spread quantities are displayed at their corresponding spread pricesin a spread window. To illustrate this step, the spread quantities incolumn 706 in FIG. 7 are displayed at their corresponding spread prices.For instance, in column 706 (i.e., the buy column for the spread) thereare 2 at 0.880, 1 at 0.870, 4 at 0.860, 1 at 0.850, 2 at 0.840, and 1 at0.830. It should be understood that the spread quantities and spreadprices may be displayed as they are generated and/or after all of thespread quantities and spread prices are generated, depending on how theautomatic spreader is programmed.

In a preferred embodiment, only those values that change from one momentin time to another are updated, but alternatively, all of the values canbe updated or refreshed at once on a frequent basis. In addition, thespread quantities and spread prices may be updated when a traderindicates an update, such as re-centering or re-positioning the spread.Re-centering or re-positioning the spread is described in theincorporated patent applications entitled “Click Based Trading WithIntuitive Grid Display Of Market Depth,” “Click Based Trading WithIntuitive Grid Display of Market Depth and Price Consolidation,” and“Trading Tools for Electronic Trading.” In yet another preferredembodiment, a throttle adjustment, which is set by a trader orprogrammer, is utilized in combination with one of the above updatetechniques. In the throttle adjustment embodiment, a value is providedthat reduces the number of times the automatic spreader updates thespread quantities and prices. To illustrate the throttle adjustmentembodiment, assume that the throttle value is set to 10 milliseconds.Then, when a change to the spread quantities in a leg occurs, theautomatic spreader determines if an update to the spread quantities forthe spread has occurred within the last 10 milliseconds. If an updatehas not occurred within the last 10 milliseconds, then an update to thespread quantities for the spread is calculated. If an update hasoccurred within the last 10 milliseconds, then an update to the spreadquantities for the spread is temporarily postponed until 10 millisecondshas past since the last update. The throttle adjustment embodimentpreferably reduces the number of calculations the computer processorshas to perform in calculating the spread quantities and prices for thespread, thereby freeing the processing to perform other processingtasks.

At step 814, if there are quantities left over, the automatic spreaderrepeats the process in steps 804, 806, 808, and 810 using only the leftover quantity. This is repeated until all of the remaining quantity hasbeen used up in at least one of the legs.

C. Spread Ask Depth

To determine spread ask depth and prices, the method used in determiningthe spread bid depth and prices above may also be used, except that theautomatic spreader will look to the ask depth in the buy leg(s) and thebid depth in the sell leg(s). So, for example, at step 904 in FIG. 9,the automatic spread would start at the spread units with the lowest askprice (LAP) in the buy leg(s) and the spread units with the highest bidprice (HBP) in the sell leg(s) to determine which is the minimum spreadunit.

As a result of looking to the ask depth in the buy leg(s) and the biddepth in the sell leg(s), per step 812, all of the spread quantities andspread prices stored in step 806 can be displayed in the spread window.The spread quantities are displayed at their corresponding spread pricesin a spread window. To illustrate this step, the spread quantities incolumn 712 in FIG. 7 are displayed at their corresponding spread prices.For instance, in column 712 (i.e., the ask column for the spread) thereare 1 at 0.960, 3 at 0.950, 3 at 0.940, 3 at 0.930 and 1 at 0.900.

D. Determining Last Traded Price and Last Traded Quantity

In an embodiment, the last traded price (LTP) and the last tradedquantity (LTQ) of the spread are also calculated using LTP and LTQvalues received from the market data feeds using the followingrelationship.LTP of spread (LTP_(leg1) *m _(leg1))+(LTP_(leg2) *m _(leg2))+ . . .+(LTP_(legn) *m _(legn))  [EQN 4]

$\begin{matrix}{{{LTQ}\mspace{14mu}{of}\mspace{14mu}{spread}} = {{minimum}( {{{abs}( \frac{{LTQ}_{{leg}\; 1}}{{ratio}_{{leg}\; 1}} )}\;{and}\mspace{11mu}{{abs}( \frac{{LTQ}_{{leg}\; 2}}{{ratio}_{{leg}\; 2}} )}\mspace{11mu}\ldots\mspace{11mu}{and}\mspace{14mu}{{abs}( \frac{{LTQ}_{legn}}{{ratio}_{{leg}\; n}} )}} )}} & \lbrack {{EQN}\mspace{14mu} 5} \rbrack\end{matrix}$

For example, according to FIG. 7, the first leg in column 726 has an LTQof 1 at an LTP of 105.12, whereas the second leg in column 728 has anLTQ of 1 at an LTP of 104.23. Using the above equations EQN 5 and EQN 6for LTP and LTQ, respectively:LTP of spread=(105.12_(leg1)* 1_(leg1))+(104.23_(leg2)*−1_(leg2))=0.89LTQ of spread=minimum(abs(1 _(leg1)/1_(leg1)) andabs(1_(leg2)/−1_(leg1)))=1For the spread window 700 in FIG. 7, LTP=0.89 and LTQ=1, which isevident by the LTP/LTQ indicator in column 724.

In another embodiment, the LTP and LTQ can be calculated based on thespread units that can be filled with an offsetting sale in the otherleg(s). When the LTQ of the first leg (i.e., the buy leg) was traded ator below the highest bid price (HBP), then the LTQ of the spread equalsthe maximum number of spread units that can be filled with an offsettingsale in the second leg at the HBP; and the LTP of the spread iscalculated using that best bid price in the second leg. In someinstances, there may not be enough quantity at the HBP in the second legto create at least one spread unit. Then, preferably, this approachwould look to the quantity at the next best bid (next best bid=HBP−oneprice level) and continue to do so until there is enough quantity tofill one spread unit. In this instance, the LTQ equals 1 and the LTP ofthe spread would be calculated using the weighted average of the variousprices in the second leg needed to fill that quantity. When the LTQ ofthe first leg was traded at or above the lowest ask price (LAP), thenthe LTQ of the spread equals the maximum number of spread units that canbe filled with an offsetting buy in the second leg at the LAP; and theLTP of the spread is calculated using that LAP in the second leg. Thisapproach can be applied to n legs. Moreover, this approach may use thesame weighted average technique described above if there is not enoughquantity at the best offer in the second leg to create at least onespread unit.

To illustrate an aspect of this alternative embodiment, referring to theexample of FIG. 7, the LTQ in the first leg was 1 at a price of 105.12,this is shown in column 726. This occurred at the HBP in the first leg.Accordingly, the LTQ of the spread is the maximum number of spread unitsthat can be filled with an offsetting sale in the second leg at 104.23(the HBP in the second leg). In this example, the LTQ of the spreadequals 1 because the spread ratios are 1 for the first leg and −1 forthe second leg and there is a quantity of 1 at 104.23, this is shown incolumn 728.

Using any of the equations, EQN1, EQN 2, or EQN 4, described above, theLTP of the spread can be calculated using the following relationship:LTP of spread=(105.12*1)+(104.23*−1)=0.89In this particular example, the method results in the same number as themethod above, that is, the method above which used both EQN 5 and EQN 6,but this will not necessarily occur in other examples.

In this alternative embodiment, the LTQ and LTP may also be calculatedstarting from the second leg (rather than starting from the first leg,as described above). When the LTQ of second leg was traded at or belowthe best bid, then the LTQ of the spread equals the maximum number ofspread units that can be filled with an offsetting sale in first leg atthe best HBP; and the LTP of the spread is calculated using that bestbid price in the first leg. If the LTQ of second leg was traded at orabove the best offer, then the LTQ of the spread equals the maximumnumber of spread units that can be filled with an offsetting buy in thefirst leg at the LAP and the LTP of the spread is calculated using thatbest offer price in the first leg. Similarly, this approach will use thesame weighted average technique described above if there is not enoughquantity at the best offer in the first leg to create at least onespread unit.

Regardless of which approach is used, the automatic spreader willpreferably update the LTQ and LTP for the spread each time there is anupdate to the LTQ or LTP of any leg.

In a preferred embodiment, once the LTQ is calculated, it is indicatedon the spread window only when at least one spread unit is available.For example, referring to FIG. 7, the LTQ is shown in column 724 when atleast one spread unit is available, which in this instance there is 1spread unit. Alternatively, an LTQ of zero is displayed when there arespreads available but not enough to complete a full spread unit.Although FIG. 7 illustrates an LTQ in integer form, it should also beunderstood that the spread units can instead be displayed in decimalform.

Note also that the LTQ of the spread can be calculated and/or displayedbased on any unit scale that the user chooses. For example, it can becalculated and displayed in spread units (corresponding to the exactspread ratios set by the trader) or it can be calculated and displayedbased on the lowest common denominator of the spread ratios or it can becalculated and displayed based on any other spread ratio. For example,assume that a trader sets the spread ratios of a two legged spread to be100 for the first leg and −70 for the second leg, and assume also thatthe LTQ for the first leg was a buy of 100 and there is 70 available inthe bid depth of the second leg. Then, according to this example, if thetrader selects to use spread units, the LTQ of the spread would bedisplayed as a 1, but if the trader selects to use the highest commoninteger factor, the LTQ of the spread would be displayed as 10 (becausethe highest common integer factor of the 100/70 spread is 10).

Furthermore, in another embodiment, color coding or other indicators maybe utilized to indicate to the trader intra-spread unit variations inthe LTQ. For example, the automatic spreader can be programmed todisplay the LTQ in various shades of color (e.g., ranging from white togreen) to indicate increments of a spread unit.

V. Trading in the Spread Window

Using one or more of the techniques described above, the automaticspreader can generate and display a spread window and its correspondingleg windows, per step 108 of the flowchart 100 in FIG. 1. In thepreferred embodiment, the spread window displays both the spread price(e.g., using EQN 1 and EQN 2) and the total quantity traded (e.g., usingEQN 3 and EQN 4) at that spread price, although more or fewer items ofinterest may be displayed such as the LTP/LTQ (e.g., using EQN 4 and EQN5).

At step 110 in FIG. 1, once the spread window is displayed, a user canenter an order(s) that has quantity at a specified price. The user mayenter the order(s) in the spread window by a click of a mouse, or by anyother input device, such as a keyboard, light pen, or a variety of othermeans. Using the ongoing example presented above with respect to FIGS. 6and 7, this section describes how the automatic spreader facilitates thetrading of a spread once the order has been entered.

FIG. 10 is substantially similar to FIG. 7, except that it shows anentered order 1032 to buy 5 of the spread at a price of 0.860 in thespread window 1000 and shows the corresponding working orders 1034, 1036automatically entered by the automatic spreader. That is, a buy order1034 was quoted in leg window 1002 and a sell order 1036 was quoted inleg window 1004. FIG. 10 illustrates an example of quoting both legs ofthe spread, but alternatively, the automatic spreader can quote only oneof the legs, or more than two legs. How many legs the automatic spreaderquotes preferably depends on the user's spread setting parameters. Inany instance, the method for quoting any number of legs preferablyremains the same.

Referring back to the configuration window 600 in FIG. 6, the user canpreferably select the appropriate spread setting parameters to quote oneor more legs of the spread. That is, by selecting any one of the “ActiveQuoting” fields 620 corresponding to the underlying leg, the automaticspreader will automatically quote the selected leg based on informationfrom the other legs, the order, and the user's preferences (e.g.,multiplier, spread ratio, etc.). For example, by only selecting the“Active Quoting” field for leg A, the automatic spreader will quote onlyleg A first. The same is true quoting leg B, or any other leg underlyingthe spread. In another example, by selecting the “Active Quoting” fieldfor both legs A and B, the spreader will quote both legs (this exampleis shown in FIG. 6). Again, regardless of whether one or more legs arequoted, in the preferred embodiment, the same calculation applies todetermine where to place the quote in the leg(s). An example of which isprovided below.

A. Determining Where to Quote

In a preferred embodiment, at the instant of placing an order in thespread window, the automatic spreader determines where to quote one ormore legs of the spread.

FIG. 11 shows a flowchart 1100 that illustrates a method of quoting aleg of a spread. The illustrated method can accommodate any number oflegs, and the method of quoting one, some, or all of the legs preferablyremains the same. However, it should be understood that more or fewersteps, in the same or different order, may be included in the flowchart1100 to obtain similar results. For the sake of simplicity, the methodin FIG. 11 is illustrated using the two-legged spread example first laidout with respect to FIGS. 6, 7, and 10. Then, looking to FIG. 10, it isvisually apparent that a trader has entered an order to buy 5 lots ofthe spread at a price of 0.860, per step 1102. This working order isshown in column 1006.

At step 1104, the automatic spreader quotes a leg based on informationfrom the entered order, information from the other n−1 legs, and theuser's preferences. In a preferred embodiment, the automatic spreaderstarts by looking to the inside market of the legs of the spread. Inparticular, it looks to the highest bid price (HBP) with quantity in alegs for which a quote to sell will be needed for this order and it alsolooks to the lowest ask price (LAP) in those legs for which a quote tobuy will be needed. In this example, the order is to buy the spread, soin the preferred embodiment, the automatic spreader will be looking tosell at the HBP in the sell legs and will be looking to buy at the LAPin the buy legs. Recall that the user can select which legs are buy legsand sell legs by entering a positive or negative ratio.

Referring back to this example, the first leg is quoted based oninformation from the second leg. Looking to the second leg (i.e., a sellleg), there is a buy quantity of 1 in column 1024 at the HBP price of104.23 in column 1028. However, when there is not enough quantity atthat level to fill an offsetting order, the software preferably looks tothe next highest bid price (or next lowest sell price depending on if itis a buy) in that leg and continues to do so until it finds enoughquantity.

In one embodiment, once enough offsetting quantity is found, theautomatic spreader uses the lowest bid price (or the highest sell pricedepending on if it is a buy) of the quantity used. To illustrate thisembodiment, referring to FIG. 10, the quantity needed to offset the buyorder is 5. However, the buy quantity of 1 in column 1024 at 104.23 isnot enough to offset the user's buy order of 5. Thus, in thisembodiment, the automatic spreader looks to the next level of quantityto supplement the buy quantity of 1, and in this example, finds a buyquantity of 6 in column 1024 at 104.22. As a result, the buy quantity of1 plus 4 of the buy quantity of 6 may be used to offset the buy order of5. According to this embodiment, the price for the second leg is 104.22.

At step 1104, the price at which to quote in the first leg can becalculated using either EQN 1 or EQN 2.k=m _(leg1) p _(leg1) +m _(leg2) p _(leg2) + . . . +m _(legn) p _(legn),k=0.860; n=2; m₁=1; m₂=−1; p₂=104.22; p₁=unknown

Solving for the unknown price to quote the first leg, p₁=105.08.Therefore, a buy order of 5 is entered in the first leg in column 1014at a price of 105.08 in column 1020. This is evidenced by theillustration of a buy order 1034 in the working order column 1014 of thefirst leg shown in window 1002.

In another embodiment, once enough offsetting quantity is found, thesoftware can instead calculate the weighted average of prices for thatquantity.

FIG. 12 shows a flowchart 1200 to better illustrate how the automaticspreader can calculate a price in an offsetting order using the weightedaverage of prices, if necessary. Although the flowchart 1200 canaccommodate any number of legs, it is illustrated using the ongoingexample from FIG. 10. It should be understood, however, that theflowchart 1200 provides only an illustration of how to calculate theweighted average price, and therefore the present invention should notbe limited to the steps, or orders of the steps, shown in the figure.

At step 1202, the quantity needed to fill the order is determined. Inthis example, the quantity needed to offset the buy order is 5. Thisvalue is known from the entered buy order and from the spread ratios.Note that a trader can enter a sell order, whichever is desired.

At step 1204, the quantity at the LAP in the first leg or the quantityat the HBP in the second leg is determined (or in other n−1 legs, ifnecessary) depending on the entered order. In this example, the traderentered an order to buy the spread, so to determine where enter an orderin the buy leg(s) (in this example, the buy leg is the first leg), theautomatic spreader preferably determines where it would currently bepossible to fill an offset order by looking at the HBP price in the sellleg. In the ongoing example, a quantity of 1 in column 1024 at the HBPprice of 104.23 is shown in column 1028.

At step 1206, a value used in determining the weighted average of pricesis found at that quantity, so using a general variable, B, the pricedetermined at that quantity can be calculated: B=(1)(104.23)=104.23. Thevariable, B, represents the actual price multiplied by the most recentquantity determined in step 1204.

At step 1208, another general variable, Total, is calculated to be usedin the weighted average price: Total=B+Total (initially,total=0)=104.23+0=104.23. The variable, Total, represents a runningtotal of B in step 1206.

At step 1210, it is determined whether there is sufficient quantity tooffset the order, in this example, a quantity of 4 more is needed(5−1=4).

At step 1212, the next lower price level from the HBP is determined (ora next higher level from the LAP, if used), which is a quantity of 6 incolumn 1024 at price of 104.22 in column 1028.

This value will be used in step 1206.

At step 1206, the remaining quantity of 4 is needed (determined fromstep 1210), so B=(4)(104.22)=416.88.

At step 1208, Total=B+Total=416.88+104.23=521.11.

At step 1210, it is determined that there is sufficient quantity tocomplete the order (i.e., a quantity of 6 is available in column 1024 ata price of 104.22 in column 1028, however only a quantity of 4 is neededto offset the order).

At step 1214, Total is divided by the total number of quantity includedin the order, which is 5. Thus, Total/5=(521.11)/5=104.222. So, theweighted average for the price in the second leg is p₂=104.222.

Referring back to FIG. 11, at step 1104, the price at which to quote inthe first leg can be calculated using either EQN 1 or EQN 2.k=m _(leg1) p _(leg1) +m _(leg2) p _(leg2) + . . . +m _(legn) p _(legn),k=0.860; n=2; m₁=1; m₂=−1; p₂=104.222; p₁=unknown

Solving for the unknown price to quote the first leg, p₁=105.08 (105.082rounded down) (Note that due to rounding, the weighted average approachresults in the same price as with the previous approach, however, thismay not always be true.)

At step 1106 in FIG. 11, it is determined whether there are any legswhich remain to be quoted. The steps 1104 and 1106 are repeated untilall of the legs have been quoted.

Continuing with the example in FIGS. 6, 7 and 10, the second leg is alsoquoted. So, the automatic spreader will place an order to sell 5 in thesecond leg, using information from the first leg. The automatic spreaderstarts by looking to the inside market of the first leg, and inparticular, looks to the lowest ask price (LAP) with quantity, which inthis example is a quantity of 1 in column 1018 at a price of 105.13 incolumn 1020.

As described above, in one embodiment, once enough offsetting quantityis found, the automatic spreader can use the lowest bid price (or thehighest sell price depending on if it is a buy) of the quantity used.Again, the quantity needed to offset the order is 5. However, the askquantity of 1 in column 1018 at 105.13 is not enough to offset the orderof 5. Thus, the automatic spreader looks to the next level of quantityto supplement the ask quantity of 1, and in this example, finds an askquantity of 3 in column 1024 at 104.22 and a ask quantity of 6 in column1024 at 105.16. As a result, the buy quantity of 1 plus 3 plus 1 of theask quantity of 6 may be used to offset the order of 5. According tothis embodiment, the price for the first leg is 105.16.

At step, 1104, it is determined where to quote the second leg,preferably this step uses the same equation as the first leg:k=m _(leg1) p _(leg1) +m _(leg2) p _(leg2) + . . . +m _(legn) p _(legn),

k=0.860; n=2; m₁=1; m₂=−1; p₂ unknown; p₁=105.16

Solving for the price to quote in the second leg, P₂=104.30.

Therefore, a sell order 1036 of 5 in column 1022 is entered in thesecond leg at 104.30 in column 1028. This is evidenced by the enteredsell order 1036 in FIG. 10.

Alternatively, finding the weighted average of prices of the quantityneeded for an offsetting order can instead be calculated:p1=((1*105.13)+(3*105.15)+(1*105.16))/5=105.148.Thus, p1=105.148.

At step, 1104, it is determined where to quote the second leg,preferably this step uses the same equation as the first leg:k=m _(leg1) p _(leg1) +m _(leg2) p _(leg2) + . . . +m _(legn) p _(legn),

k=0.860; n=2; m₁=1; m₂=−1; p₂=unknown; p₁=105.148

Solving for the price to quote in the second leg, p₂=104.29 (104.288rounded up).

Therefore, a sell order 1036 of 5 in column 1022 could be entered in thesecond leg at 104.29 in column 1028 (not shown).

This process continues until all of the legs are quoted.

In the preferred embodiment, the user may instead select to have theautomatic spreader quote only based on the inside market prices byunselecting the “Adjust For Market Depth” icon in a spread configurationwindow for any given leg. Using the above example, if this option wasunselected, then when quoting the first leg, price_(leg2) would havebeen set at 104.23. The offsetting order on the first leg would havebeen entered, then, atspread price=(price_(leg1) *m _(leg1))+(price_(leg2) *m _(leg2))

-   -   spread price=0.860;    -   m_(leg1)=1;    -   m_(leg2)=−1;    -   price_(leg1)=unknown    -   price_(leg2)=104.23    -   then, plugging in the known values into EQN 1 or EQN 2 gives:        0.860=(price)(1)+(104.23)(−1), where price_(leg1)=105.09.

Similarly, for quoting the second leg, price_(leg1) would have been setat 105.13 and the offsetting order on the second leg would have beenentered at 104.27.

Regardless of which method is used to quote a leg, the automaticspreader preferably determines if there is enough quantity to completean offsetting order before an order is entered. In the examples above,there was enough quantity to complete the offsetting order and thus theautomatic spreader allowed the entering of the buy order in the spread.Preferably, the automatic spreader allows a trader to select how toenter orders when there is not enough quantity to complete the order,but alternatively, the automatic spreader could be programmed on how toenter orders when there is not enough quantity to complete the order. Ina preferred embodiment, when there is not enough quantity to completethe offsetting order, the automatic spreader does not allow the order(i.e., to buy or sell the spread) to be entered at that time, andpreferably advises the trader that there is not enough quantity tocomplete the order. The trader can change his or her order accordingly.In another preferred embodiment, when only a fraction of the offsettingorder can be completed, the automatic spreader will allow an order foronly the fraction available and advise that the order could not beentered for the remaining portion of the order. For example, assume thata trader has attempted to enter an order to buy 30, but only 10 wasavailable at that time, then in this embodiment, the automatic spreaderwould enter an order to buy 10, and advise the trader that the remaining20 could not be entered. In yet another preferred embodiment, if therewas enough quantity at the time the order was entered, but the quantitychanged and now there is not enough quantity to complete the order, theautomatic spreader can delete the order or part of the order, ifpossible. Alternatively, the automatic spreader can be programmed tolook for more quantity than is needed to complete an offsetting orderbefore an order is entered to operate as a protective mechanism thatwould increase the likelihood that an offset will get filled. There aremany other ways in which the automatic spread may allow orders to beentered or not entered, depending on available quantities in the marketand the invention is not limited to any particular approach.

B. Re-Pricing of Quotes

At this point, a user has already entered an order. As the markets foreach leg move, the price levels of the working orders in the legs needto change in order to maintain the spread level being sought by thetrader. Preferably, the automatic spreader automatically moves theworking orders in the legs accordingly. A trader may want to limit thenumber of times the automatic spreader re-quotes the legs. This maydesirably reduce the chances of losing a trader's spot in the queue atthe exchange, or may reduce the charges for submitting orders at anexchange, etc. Thus, in the preferred embodiment, the automatic spreaderallows an acceptable range of prices to change before the automaticspreader re-prices the order into the legs. Therefore, if the market hasmoved, but is still within the acceptable range set by the user, theworking orders in the legs will not be moved. Accordingly, if a workingorder gets filled the actual price that the trader purchased or sold thespread at may be different (within the acceptable range set by thetrader) than the price of the spread at which the trader originallyentered the order.

This acceptable range is defined by variables that are referred toherein as “slop”. Generally, slop is a number based on units of changein whatever denomination the prices of the spread are calculated Apreferred embodiment uses values for both an ‘inside’ and an ‘outside’slop. As described herein, the inside slop value generally defines theworst price (the highest in the case of spread bid and the lowest in thecase of a spread offer) a user is willing to accept for a spread, andthe outside slop generally defines the best price (the lowest in thecase of a spread bid and the highest in the case of a spread offer) theuser is willing to accept for a spread.

Referring back to the spread configuration window 600 in FIG. 6, theslop variables can be set by the user with ‘Inside Slop’ and ‘OutsideSlop’ fields 608 and 610. In the preferred embodiment, a slop value of 0indicates that the slop range is zero, and more specifically, that thelegs will be re-quoted every time the market prices in the legs move.The larger the slop value, the larger the slop range will be, whichallows for more market fluctuation before the automatic spreaderre-quotes the legs.

As previously described above, using slop, the spreader will change theprice levels of working orders in the legs when the working spreadchanges such that it is out of the range between the inner and outerprices. Whenever market prices change, a trader's working spread ordersare preferably checked against the trader's desired spread price forprice validity (e.g., whether or not they are within the slop settings).For spread bid: Inner Price=Target Price+Inside Slop  [EQN 6]Outer Price=Target Price−Outside Slop  [EQN 7]If Outer Price<=Working Price<=Inner Price, then the working orders inthe legs may be unchanged. Otherwise, working orders may bere-calculated and re-entered pursuant to the quoting algorithmsdescribed above.For spread offer: Inner Price=Target Price−Inside Slop  [EQN 8]Outer Price=Target Price+Outside Slop  [EQN 9]If Inner Price<=Working Price<=Outer Price, then the working orders inthe legs may be unchanged. Otherwise, working orders may bere-calculated and re-entered pursuant to the quoting algorithmsdescribed above.

In the calculations above, the ‘working price’ is the trader's workingspread price based on the current markets in the legs. The working pricestarts off equal to the user's target or desired price, and moves up anddown in price as the market fluctuates. The ‘target price’ is thedesired price of the trader's spread order entered in the spread window.The ‘inner price’ and ‘outer price’ are the prices that form the sloprange that are preferably set by the user. Below are two examples thatfurther illustrate slop and the automatic re-pricing mechanism.

i) EXAMPLE 1 Re-Pricing

FIG. 13 shows a spread window 1300 for this example. Assume that atrader has working spread orders at a bid price of 80.00 and an offerprice of 84.00. Assuming that this example involves a two leg spread,the spread bid corresponds to a bid in a first leg and an offer in asecond leg. Similarly, the spread offer corresponds to an offer in thefirst leg and a bid in the second leg.

Assuming that both the inside and outside slop settings in the spreadconfiguration window were set to 5, the spread range for the offer wouldbe between the prices of 79.00 and 89.00 and the spread range for thebid would be between the prices of 75.00 and 85.00. According to thisexample, the working spread range values are calculated as follows:

For the spread bid: Inner Price = 80.00 + 5 = 85.00 Outer Price = 80.00− 5 = 75.00 For the spread offer: Inner Price = 84.00 − 5 = 79.00 OuterPrice = 84.00 + 5 = 89.00

FIG. 14 shows a graph illustrating the working offer spread for thisexample. The target price is 84.00 and the slop range is between 79.00and 89.00. The prices at which the working orders in the legs are quotedonly change when the working spread price crosses either the outer pricedesignation or the inner price designation. Thus, an order might not befilled at the original order price of 84.00, but at a price within theslop range of 79.00-89.00. It should be understood that the invention isnot limited to this exact use of inside or outside slop and is notlimited to triggering a change in the working orders based on theworking price crossing either the inner or outer price designations. Forexample, alternatively the working orders can be re-priced if theworking spread price reaches either the outer or inner pricedesignations.

FIG. 15 shows a graph illustrating the working bid spread offer for thisexample. The target price is 80.00 and the slop range for the bid isbetween the prices of 75.00 and 85.00. Only when the working spreadcrosses either the outer price designation or the inner pricedesignation, will the working orders be re-priced. Again, an order mightnot be filled at the original order price of 80.00, but at a pricewithin the slop range of 75.00-85.00.

ii) EXAMPLE 2 Re-Pricing

In yet another example, assume that a trader is trying to buy a spreadat a price of 700 with an inside slop of 20 and an outside slop of 50.Thus, if the working spread price remains within a range of 650-720, theauto spreader may not re-price the working orders in either of the twospread legs. Moreover, this also means that the trade may get filledanywhere between 650-720, even though the spread order bid is at 700.Similarly, if the trader were trying to sell the spread at 700 with thesame slop values, the acceptable fill range is between 680-750. Therelevant spread parameters might include for leg A: spread ratio=1,multiplier=10, active quoting on; for leg B: spread ratio=−1,multiplier=−10, and active quoting is turned off. Also, for the purposesof this example it is assumed that the trader has chosen to use insidemarket prices as the basis for quoting.

For this example, the trader wants to buy the spread at 700, assumingthat the market is currently:

Bid Offer Leg A: 1000 1005 Leg B: 900 920Knowing that the trader would have to sell leg B at 900, the autospreader calculates where to put the buy in for leg A to achieve aspread price of 700 by using either EQN 1 or EQN 2:(10*X)−(10*900)=700

-   -   X=970        So, the spreader places a bid in leg A for 970. Now, assume the        slop settings are an inside slop of 20 and an outside slop of        50.

In this embodiment, because the trader is buying the spread, the insideslop applies to spread prices above the target price, and the outsideslop applies to spread prices below the target price. If the trader wereselling the spread, the opposite would be true. So, in this particularcase, with these slop settings (i.e., inside slop=20, outside slop=50),the trader is trying to buy the spread at 700, but in the interest ofavoiding constant quoting the trader is willing bid the spread in arange between 650 and 720. Since the trader is only actively quoting legA, the only thing that might cause the order in leg A to move, is achange in the buy price for leg B (e.g., because the trader would liketo sell leg B).

Now, assume that the market in B moves to 899 in leg B, 920 in leg A.Thus, if our working buy order in leg A were to hit at 970, the order inleg B would sell at 899 and the spread price would be:(10*970)−(10*899)=710The spread price of 710 is within the acceptable range of spread prices(i.e., 650-720) so the automatic spreader would not move the restingorder in leg A at 970. Next, assume that the market in leg B drops to896 in leg B, 919 in leg A. If the working buy order in leg A were hitat 970, the order in leg B would sell at 896 which implies:(10*970)−(10*896)=740This price (i.e., 740) is now outside of the acceptable price rangeestablished by the slop so the quote in leg A is moved. The automaticspreader would then calculate the new price for leg A based on thespread order price of 700 and a bid price in leg B of 896:(10*X)−(10*896)=700

-   -   X=966        The automatic spreader changes the price of the bid order on leg        A to 966. Now, assume that the bid in B moves back up to 900. If        the buy order at 966 in leg A is filled and leg B would sell        at 900. That gives a spread price of:        (10*966)−(10*900)=660        The spread price of 660 is within the acceptable range of        650-720, so the quote in leg A does not need updating. However,        suppose that the bid in leg B continues up to 903. If the buy        order at 966 in leg A is filled and sell leg B at 903, it would        give us a spread price of:        (10*966)−(10*903)=630        Since, the spread price of 630 is outside the acceptable range        of 650-720, the buy order in leg A would be updated, like        before:        (10*X)−(10*903)=700; X=973        Thus, the working order in A is moved up to 973.

In the preferred embodiment, a trader can choose the particular mannerin which the automatic spreader re-prices orders. For example,preferably the trader can choose to cause the automatic spreader todelete old orders and enter new orders or the trader can choose to havethe automatic spreader use cancel/replace orders.

C) After an Order is Filled

Once a leg is filled, an “offset order” is preferably sent to fill theother leg(s) at either the market price or as a limit order withpre-defined “pay-up ticks,” depending on the configuration of the spreadas set by the user. A market order is a bid or ask order that isexecuted at the best price currently available in the market. In thisembodiment, the best prices are those prices nearest to the insidemarket, where the inside market is the highest bid price and the lowestask price for the tradeable object being traded for which there isquantity in the market. A limit order is executed at a specific price asdictated by the trader, regardless of whether it is the best priceand/or regardless of whether there is sufficient quantity available foran immediate fill.

Preferably, the user may configure the automatic spreader 214 to useeither of these two offset techniques, but alternatively, other offsettechniques known in the art of trading may be implemented. Referring toFIG. 6, the value entered in the ‘Offset with’ field 624 may be used todetermine whether quantities are entered as market orders or limitorders. If the ‘Offset with’ field 624 is set to ‘market orders’, thenquantities will be entered into the market as market orders. If thefield 624 is set to ‘limit orders’, then quantities will be entered aslimit orders based on the value in the ‘Payup Ticks’ field 626. Thelimit orders can be based on any price level, either pre-set orcustomizable by the user. In the preferred embodiment, the limit ordersare based on a price that will achieve the desired spread.Alternatively, the limit orders are based on the inside market (eitherthe best offer in the case of a bid or the best bid in the case of anoffer).

In this embodiment, the ‘payup tick’ value in field 626 represents thenumber of ticks (a tick is the minimum change in a price value that isset by the exchange for a tradeable object) that a trader is willing topay beyond the basis of the limit price to complete a spread. Toestablish the price of the limit order, the payup tick value is added tothe basis for a buy order and subtracted from the basis for a sellorder. This allows the trader to set a level of tolerance with respectto the filling of an additional leg. In the preferred embodiment thistolerance is defined by the user specifying a number of ticks but theinvention is not limited to this particular technique. The use of pay-upticks is further illustrated in the example below.

i) EXAMPLE 1 Quoting One or Two Legs with Offset Based on Market Orders

For example, when quoting one leg of a two-legged spread, after theworking order is filled in the quoted leg, the automatic spreader willpreferably send an offset market order to fill the other leg. If theautomatic spreader is quoting both legs of a two-legged spread, afterone of the working orders in one of the legs is filled, the automaticspreader preferably sends an offset market order to the other leg andthen attempts to delete the working order that was being quoted in theother leg. If some or all of that working order gets filled before itcan be deleted, in the preferred embodiment, the automatic spreadersends a corresponding offset market order to the other leg. Thissituation is called a double fill scenario. Alternatively, the automaticspreader can be set to first delete the working order being quoted inthe other leg before sending the offset market order. The invention isnot limited to the specific technique used.

When a partial quantity is filled in one of these legs, the spread ratiosettings are preferably used to determine the quantity of the order thatis sent into the second leg's market.

For example, suppose a trader is working a 10-by-30-spread order and twoof the 10 working quantity are filled on the first leg (20% of theworking quantity). An equal percentage (20%) of the offset quantity maybe sent into the market for the second leg. For the above example, aquantity of six (20% of 30) would be sent into the second leg's market,and the quantity of the spread would be adjusted based on the partiallyfilled quantity. If the quantity (or spread units) are not wholenumbers, the automatic spreader can round up/down or truncate, dependingon how it is programmed.

ii) EXAMPLE 2 Pay-Up Ticks

Referring to FIG. 16, assume that a trader is working a spread forproducts A and B, sells the actively quoted quantity for Product B andconsequently now wants to buy in product A in order to complete thespread. Assume that the desired spread value can be achieved by buyingproduct A and a price of 63. Therefore, in the preferred embodiment, theprice of 63 is the basis for calculating the limit order. Also assumethat the ‘payup tick’ field for that leg contains a value of three. Assuch, a limit order may be entered at a price of 66.0, which is theequivalent to the basis plus the three payup ticks. If there issufficient quantity available to complete the spread at a bid price of66.0 or less, that quantity might be filled immediately. If no suchquantity is available, the limit order might not immediately be filled,but may instead remain entered at the price of 66.0 until sufficientquantity becomes available. In addition, if the trader sets the ‘payuptick’ value to three and a limit order is entered at a price that isthree ticks from the basis, but quantity is available at a price betterthan where his limit order was entered, he might get filled at thatbetter price. The payup tick feature of the preferred embodiment therebyputs a limit (the extent of which is defined by the payup ticks) on howfar away from the basis the trader is willing to allow an offset orderto be filled. On the other hand, by enabling the feature a trader isrisking that he will not be filled at all on a leg of the spread.

VI. Additional Embodiments

A. Using a Visual Indicator to Identify Spread Orders

In a preferred embodiment, a visual indicator is used to identify aspread window and the spread's associated orders from other spreadsand/or orders. In this embodiment, the visual indicator is a color usedto identify or distinguish a spread and its corresponding orders fromother spreads and/or orders. Referring to FIG. 6, the leg color ID 612allows a user to select the color for the spread. For example, accordingthis embodiment, a green visual indicator is used (text may be used toindicate color in the figures). In this example, a trader can visuallydetermine the spread and the corresponding orders in legs 1 and 2 bymatching the green color shown in FIG. 7. Then, to trade a secondspread, which is separate from the first “green” spread, another colormay be chosen that is different from green to distinguish the secondspread from the first spread. This may be repeated for as many spreadsand orders as are traded.

In an alternate embodiment, other indicators such as text may be used toidentify a spread window and the spread's associated orders from otherspreads and/or orders. Moreover, a combination of indicators such astext and color may be used. Such indicators preferably allow a trader toeasily and quickly distinguish spread orders from other spread orders,as well as orders entered directly into the underlying legs.

B. Multiple Spread Windows

In this embodiment, multiple spreader windows may be open, depending onthe application. Each spreader window may be independent from eachother, even if they share common legs.

C. Ability to Trade in Legs

In this embodiment, a user may also trade in the legs. That is, ordersmay be entered directly into one or more of the legs as trades that areindependent from the spread trade. Using a visual indicator, or lackthereof, leg trades may be distinguished from working orders for aspread trade.

D. Ability to Move/Cancel Spread Quotes in Legs

In this embodiment, a user can move and/or cancel orders in any of thelegs at any time before filling. For example, in FIG. 10, the spreadwindow 1000 has an order entered at a price of 0.860. To delete theorder 1032, the “Delete 5” icon 1040 can be pressed, which will deleteonly the order entered to buy 5 of the spread at 0.860. Alternativetechniques can be used to delete the working orders, such as leftclicking directly on the working order. Other orders in column 1006 (notshown) may also be deleted, along with the order 1032, by pressing the“Del All” icon 1042. Moreover, the order 1032 can be moved to adifferent price, by dragging the order to another cell in column 1006.

The same is true for orders entered in the legs. Using the delete iconsshown in the legs, a user can delete some or all of the orders for thatparticular tradeable object. In addition, orders in the legs can bemoved in a similar fashion as moving spread orders. Although, movingorders in the legs that are related to a spread may change the target orimplied price of the spread.

VII. Conclusion

The present embodiments facilitate the automatic trading of spreads. Thepresent embodiments may assist a trader who trades in a competitiveelectronic trading environment. Sometimes, information in the markets ismoving so rapidly that even the human mind cannot comprehend the numbersin a fast enough manner as to make accurate trades. The presentembodiments, however, can take this fast-moving market information andmay automatically calculate what to quote, what price to quote at, andhow much to quote, in addition to other useful aids. This can result insuccessfully making trades at the most favorable prices.

Moreover, they provide a user with the ability to create a spreadbetween one or more tradeable objects. This provides a uniqueopportunity to a trader because it allows the trader to trade a spreadnot otherwise offered by an exchange. The present embodiments provide aflexible solution because they allow a user to select which tradeableobjects they desire to trade as a spread, and upon selection, a spreadwindow may be generated and displayed. Moreover, the user can submitorders for one or more legs, while aspects of the present embodimentsautomatically and actively quote the other legs in order to achieve thespread. Other embodiments also assist the trader by allowing for theefficient and quick re-pricing of quotes in the legs of the spread andby allowing the trader to set tolerance levels (slop) so that theautomatic spreader can automatically determine when to re-price in anefficient manner as specified by the trader. In addition, an embodimentallows the trader to easily simultaneously trade multiple spreads andthe legs of the spread, across one or more markets. Furthermore, thepresent embodiments may allow a trader to identify an opportunity theywould like to trade, automatically place the orders that establish theopportunity, and manage the opportunity until it closes.

There are many ways in which the present embodiments can be utilized intrading tradeable objects. Therefore, it should be understood that theabove description of the invention and specific examples, whileindicating preferred embodiments of the present invention, are given byway of illustration and not limitation. Many changes and modificationswithin the scope of the present invention may be made without departingfrom the spirit thereof, and the present invention includes all suchchanges and modifications. For example, the methods for generating thespread window may be modified for a particular type of trading, and inparticular, for a particular type of spread trading. In yet anotherexample, the methods for quoting the legs may also be modified for aparticular type of trading.

1. A method for spread trading in an electronic trading system, themethod comprising: generating a spread between a first tradeable objectand a second tradeable object, wherein the first and second tradeableobjects are listed at an electronic exchange; receiving a desired spreadprice to buy or sell the spread; automatically entering an order at theelectronic exchange to buy or sell the first tradeable object of thespread based on a plurality of spread setting parameters, the desiredspread price, and market conditions in the second tradeable object;automatically calculating a working spread price based on a price of theorder and market conditions in the second tradeable object; andrefraining from changing the price of the order at the electronicexchange when the working spread price stays within a range of pricesdetermined by the desired spread price and a boundary parameter.
 2. Themethod of claim 1 further comprising determining the range of prices byadding the boundary parameter to the desired spread price.
 3. The methodof claim 1 further comprising determining the range of prices bysubtracting the boundary parameter to the desired spread price.
 4. Themethod of claim 1 wherein the step of automatically entering the ordercomprises determining the price for which the order is entered based onthe plurality of spread setting parameters and based on either a highestbid price or a lowest ask price currently available in the secondtradeable object.
 5. The method of claim 4 wherein if the price of theorder is based on the highest bid price in the second tradeable objectand the highest bid price changes, then automatically calculating theworking spread price based on the order and the new highest bid price.6. The method of claim 4 wherein if the price of the order is based onthe lowest ask price in the second tradeable object and the lowest askprice changes, then automatically calculating the working spread pricebased on the order and the new lowest bid price.
 7. The method of claim1 further comprising a second boundary parameter such that when theworking spread price stays within the range of prices determined by theboundary parameters, the price of order is not changed.
 8. The method ofclaim 1 further comprising a second boundary parameter such that whenthe working spread price falls outside of the range of prices determinedby the boundary parameters, the order is re-priced.
 9. The method ofclaim 1 further comprising setting the boundary parameter.
 10. A methodfor spread trading in an electronic trading system, the methodcomprising: generating a spread between a first tradeable object and asecond tradeable object, wherein the first and second tradeable objectsare listed at an electronic exchange; receiving a desired spread priceto buy or sell the spread; automatically entering an order at theelectronic exchange to buy or sell the first tradeable object of thespread based on a plurality of spread setting parameters, the desiredspread price, and market conditions in the second tradeable object;automatically calculating a working spread price based on a price of theorder and market conditions in the second tradeable object; andautomatically changing the price of the order at the electronic exchangeonly when the working spread price goes outside of a range of pricesdetermined by the desired spread price and a boundary parameter.
 11. Themethod of claim 10 further comprising determining the range of prices byadding the boundary parameter to the desired spread price.
 12. Themethod of claim 10 further comprising determining the range of prices bysubtracting the boundary parameter to the desired spread price.
 13. Themethod of claim 10 wherein the step of automatically entering the ordercomprises determining a price the price for which the order is enteredbased on the plurality of spread setting parameters and based on eithera highest bid price or a lowest ask price currently available in thesecond tradeable object.
 14. The method of claim 13 wherein if the priceof the order is based on the highest bid price in the second tradeableobject and the highest bid price changes, then automatically calculatingthe working spread price based on the order and the new highest bidprice.
 15. The method of claim 13 wherein if the price of the order isbased on the lowest ask price in the second tradeable object and thelowest ask price changes, then automatically calculating the workingspread price based on the order and the new lowest ask price.